Japan shifts tax from corporates to consumers

The rebalancing of the Japanese tax burden from companies to consumers is now approximately at the halfway point of premier Abe’s plan.

The rise in 2014 Consumption Tax rise from 5% to 8% means that the revenue from the indirect tax has raised from Yen 8 trillion to Yen 17 trillion in two years. This compares with a drop in corporate income tax from Yen 15 trillion in 2007 to just Yen 11 trillion today – which is less than 20% of the total tax revenue.

The Abe administration has extended tax pivot by planning a 3.29% cut in the corporate income tax to help attract and retain job-creating industries from around the world. Japan has one of the highest corporate income tax rates in the world at 37%.

The US' rate is 39%, although there are many deductions and exceptions to this headline rate.

Plans for a second Consumption Tax rise to 10% to help meet the sharp rising social security costs of an aging population means this reliance on consumer will further increase. This second rise was delayed from April 2015 as the first tipped the country back into recession.

In the run-up to this latest rise, there has been a debate to include a new, reduced Consumption Tax rate for essential foods and supplies. This would help alleviate the regressive impact of the rise on the poorest in society.

VP Global Indirect Tax

Richard Asquith

VP Global Indirect TaxRichard Asquith

Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.